Pinnacle Pizza Co. v. Little Caesar Enterprises, Inc., does some contract interpretation on ownership of trademarks in a franchise relationship – not the trademarks originally licensed, but a trademark created by a franchisee.

Pinnacle Pizza was a franchisee for Little Caesar Enterprises pizza (I’ll use “Little Caesar” to refer to the company; the trademark is with an “s,” “Little Caesars”). In 1997 Pinnacle developed a successful promotion called “Hot N’ Ready,” where it guaranteed customers could purchase a medium pepperoni pizza for four dollars every Tuesday, ready within five minutes. By 1999 Little Caesar was promoting the program itself with all its franchisees, providing advertising materials for the program and asking the franchisees to report sales information on the program. Little Caesar registered the trademark for HOT N’ READY with the USPTO, using Pinnacle’s first use date in the application. Pinnacle sued in 2004; the matter was before the court on cross-motions for summary judgment.

The ownership of the trademark was controlled by the franchise agreement, with what Pinnacle argued were competing clauses. First, Section V., entitled “Proprietary Marks and Inventions,” stated:

A. Franchise Owner acknowledges that the name “Little Caesars” and such additional names and marks as have been hereinabove recited are in themselves, or incorporated and included with them, valid trademarks or service marks, solely owned by LITTLE CAESAR, and that LITTLE CAESAR and its licensees have the sole right to use such trademarks, service marks, and trade names, presently existing or to be acquired in the future, in the operation of a restaurant or food service business in connection with products and services to which they are applied by LITTLE CAESAR [.]

B. Franchise Owner expressly acknowledges that any and all goodwill associated with said Proprietary Marks, including any goodwill which might be deemed to have arisen or to arise in the future through the activities of any Licensee of LITTLE CAESAR, inures directly and exclusively to the benefit of LITTLE CAESAR.

F. Any and all improvements or modifications in the LITTLE CAESAR System, franchise trade secrets, or know-how licensed hereunder whether made by LITTLE CAESAR or by Franchise Owner or by another LITTLE CAESAR licensee, shall be and become the sole property of LITTLE CAESAR which shall have the sole and exclusive right to patent, copyright, register, or otherwise protect the same; provided, however, that in no event shall advertising created by Franchise Owner be considered to be an “improvement or modification in the LITTLE CAESAR System.”

The “LITTLE CAESAR System” was defined in the recitals as “a business plan and method in connection with the operation of such restaurants for providing products and services, utilizing certain standards, specifications, methods, procedures, techniques, management systems, identification schemes and proprietary marks and information.”

Section XII.D., pertaining to advertising, stated:

Franchise Owner, at its sole expense, may utilize LITTLE CAESAR’s television and radio advertising materials (for its sole benefit or jointly with other LITTLE CAESAR Franchises), by dealing directly with LITTLE CAESAR’s advertising agency. LITTLE CAESAR may not use the original advertising materials created by Franchise Owner without its prior written consent.

The question was whether the “Hot N’ Ready” mark was “original advertising materials” that could not be used by Little Caesar without consent. Using standard contract interpretation principles, the court found that the advertising clause in XII.D. was a reference to any written materials or audio or television materials, not the underlying related ideas or concepts. Instead, the ownership of the slogan “Hot N’ Ready” was controlled by Section V, particularly Section F, which placed ownership of “improvements or modifications in the Little Caesar System . . . or know-how” with Little Caesar. The court was right to not read V.A. as the operative section; Section V.A. is the trademark license grant and its reference to “future” trademarks is only a grant of a license to them, not a provision that describes how it might come to own them in the first place.

Once the slogan was deemed an improvement, modification or know-how of the “Little Caesar System,” it was forgone that the goodwill associated with it inured to Little Caesar per Section V.B. And because the goodwill in the mark inured to Little Caesar, the trademark application was not invalid because it used Pinnacle’s first use date.

The agreement was not very clear on ownership of marketing slogans developed by franchisees but the outcome seems right; the concept of a franchise is that the consumer perception is of a unitary organization. Consumers would probably believe that “Hot N’ Ready” was a slogan for the Little Caesars brand, not the individual franchise owner, and so Little Caesar the rightful owner.

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Ms. Chestek is admitted to practice in Connecticut, the District of Columbia, Massachusetts, New York and North Carolina and is Board Certified by the North Carolina State Bar's Board of Legal Specialization in Trademark Law.

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